How To Scale Your Real Estate Business From Duplexes To Rentals

When you are starting and your goal is $10,000, you need to build your business to build $10,000 a month. That is the business that you have to build. And there's a way to map this that is super simple. If you have $100,000 a month that you're trying to create, it's a completely different business with a completely different org chart. So what you have to do is you have to map out the goals, which Cody just presented. And for you guys watching on YouTube, first of all, make it to the event next time. Second of all, watch Cody's episode. I'll post that as well. These two are actually gonna go together hand in hand. Fantastically. So you set your goals, you know where your targets are, then you need to map out, okay, what roles and people do I actually need in the universe to create this business? Now, $10,000 a month, very, very simple to do it yourself. So I'll map out what that engine looks like and how you can get your time back. Who here in the audience is doing real estate because they want time freedom? Like eventually the goal is time freedom. That's okay. That's most of us. Obviously financial freedom, being able to do vacations, retiring a spouse. There's a lot of different reasons to want to get into real estate, But ultimately a lot of us want to make work optional, or you just want to have control over your time. So having a single-person org is really hard if you want ultimate time freedom. The correct scale of your business can be completely dependent on you. Cody talked about upscaling, downscaling. One of my personal reasons for scaling up is because I had an obligation with the Robinhood I needed to figure out. That was $1 million. I had 2 years to do it. So the engine that I had to build didn't look like the engine I was trying to build at first. Get to 50, to 100 rentals, get $10,000 a month cash flow. It became, huh, wait, I need to be making about $42,000 a month. I'm not currently making $42,000 a month. We have a different engine that we have to build. So I have 2 pages left because Cody has used up the rest of my pages of math, which I appreciate. That was an awesome segment. Thank you for doing that. So I'm going to, in 2 pages or less, show you exactly what the org chart looks like. Mapping this is how I made every single company, multifamily strategy, It's how we built the PM company, the first one that I sold, the second one that I have. We have a sales and marketing company that I also traded my way out of, and I have a ton of real estate. Some of these we're just about to close on. 144-unit has its own org chart with its own on-site staff. The last business we had to do this for was called the Robin Hood Village Resort. You're sitting inside it. This has 5 staff in the winter, up to 10 staff in the summer. All of these need to have a mapping for how you manage your time, especially if you end up in a position where you have a few different businesses. We have PMs supporting the rentals. We have, you have to do accounting, you have to do HR. You, there's so many roles at some point. You can't have all of the financial freedom and all of the time freedom unless you map out who are your key people. If your goals are just you just owning your real estate, nobody's doing it. Matt Hawkins, one of my favorite mentors, Lumberjack Landlord on YouTube. That's exactly what he did. He said, hey, no people, no partners. This is what I'm gonna do. You can build that business. It will have certain limits. It can only make so much. And for many people, way more than you need, way more. Matt is worth more than me, Cody, and probably most of us in this room combined. You can do this as a solo op. I'm gonna show you what that looks like and then what the engine looks like if you choose to scale your business to time freedom. So at the top of your org chart, almost every time, if you are the one in charge and driving the ship, you My handwriting is worse than Cody's, by the way. So buckle in. You are at the top of the org chart. You know, you, you know your capabilities, you know your goals. I always put in the corner what my actual objective is. So I'm going to start with we're making $10,000. Again, YouTube, I have 2 pages to work this in for. So zoom in on your cameras. If you're watching on your phone, you have you, you have a goal. I am trying to get to $10,000 per month. What do I need to do this in real estate? Well, I'm going to need to start stacking cash flow. And if I'm finding my deals or adding $1,000 here, $2,000 a month here, I'm probably going to need to do 5, 6, 7 transactions over the next few years. So as I'm doing this, what do I actually need to do functionally? And so I break it into categories. We have deal finding. Okay, how are we finding deals primarily? For me, it's been heavily direct to owner, build relationships in markets. I should probably do that one myself. So I know no matter how I scale my business, that's always going to be highly dependent on me. And then we have broker relationships, the people who professionally are out there finding and negotiating deals. How do I move to the top of their list and work exclusively with them? So this will divide into two categories, call that broker relationship and owners. Now, once we acquire said properties, we have to do management. This could be third party, this could be you. I opted to do some of this myself because we got absolutely robbed by my first property manager, and I've had this happen to me multiple times. I like the control. It's a crappy business to be in. It is low margin. If you do a great job for your clients, you increase the value of their property, they sell it and you get fired. If you do a terrible job, you definitely get fired. If you do a mediocre job, then like who wants to have a mediocre business? So PM is a hard job. It can be fun if you own a lot of the rentals. So I do third-party management for people around me and it's about 50/50 between my rentals and other people's rentals. That way I can be excellent for everyone, but I don't, I depend on my clients to make that business work, but management going to be part of your business management. Who's going to be running that team? Then we have capital. Now, if you want to get to $10,000 a month, these don't take that much time. I spend for this goal finding deals. I need to book a call with an owner. Roughly, I'm making 1 or 2 calls a day on average, making like 10 calls a week and someone maybe 2 or 3 someones will actually pick up the phone and going through this conversation, at least one of them is going to book a coffee meeting with me, which means on average once a week I'm meeting with some owner in a market where I want to buy a property. And if it's out of state, I'm just booking a phone call. I'm not having the full phone call on a cold call. They're not ready for it. I am calling to schedule either a call or a coffee meeting or in Texas, a barbecue meeting. It depends on where you're at. So for me, I'm like, okay, 2 phone calls. We're talking like 30 mins maximum per day of time. Usually for me, it's like 10, very little time in deal finding. Calling brokers, one of the easiest things in the world to do. We talk about it all the time on my YouTube channel, all the time on Multifamily Strategy. Talking to brokers is a very simple process. It's kind of like ordering a drink at Starbucks. They literally are there waiting for someone to call on the deal to talk about the deal. So when you reach out to them, your only mission is to come off as a ready, able, and willing buyer. When you start, none of this takes much time. These are listed online and they're just deals. The price that's online doesn't mean anything. All you know when you see a building online, you know what the building looks like, you know what they claim the numbers are if they decided to share any on their listing, and you know that it is a seller willing to sell. Multifamily brokers are all okay. So used to work for LoopNet, LoopNet, and even better, CREXi, C-R-I-E-X-I. CREXi. I can only write with my hand. This hand knows how to spell. My mouth does not. It's funny. If I wrote it, I could spell it. So you hop on LoopNet, you hop on CREXi, whoever lists the properties that look like what you want to buy. So I'm actually shopping the image, not the numbers. I'm like, that would be cool. That would be cool. That looks horrible. That building is 380 Class A units. I'm going to assume I don't qualify to buy that yet. You can really quickly figure out that's what I want to buy. Whoever is listing the properties that I want to buy, that's the broker that I want to have the relationship with because this isn't going to be their only deal most likely. And those firms tend to represent that. So the beautiful thing with brokers is that they market themselves. You can do this. This costs you 30 minutes. Raising capital. You do this after you find a deal. I need those relationships. A lot of these people are those owners that you met with, people who already own in that market, who have already made money in real estate. One thing you find is the people who tend to own a lot of the buildings in your market, have a lot of money because they bought a lot of buildings in your market and they've owned for a while. They're comfortable with your market. A lot of my capital partners are owners already in the markets that I'm operating in. Very, very, very common. I'm also going to build other relationships. I'll go to meetups, I'll do all sorts of stuff. Raising capital is easy if you have a deal. We talk about this all the time. I won't use all my whiteboard space for it, but it's deal, debt, equity. You find the deal, you manufacture the deal like Cody's math section, you choose the most appropriate debt product. I view it, you know, the little dropdown arrow when you're looking at options on a computer, you click it, what's available for this deal? Sometimes it's seller finance, sometimes it's private capital, sometimes it's an equity partner. Sometimes you can go through the whole list, bank debt, direct to Fannie, bridge loans. It goes on and on. You choose the best debt product. And then after you have a full package, you're going to someone for the last 10% of the deal, the last 20% of the deal. Hey, we have this opportunity. This is how much money it's going to make. Capital is not complicated. Almost impossible without this piece. Now, once you close your deal, you need to have some idea how you're going to manage it. This involves maintenance. Yeah, whatever. Too many, too many letters. Maintenance and construction. We have to do our capital improvements. We have to have an idea of what we're doing. Otherwise our building is going to fall apart and then we're going to lose all of our money. Management. We have to have rent collection and we'll call it tenant communications. Someone needs to interface with your tenants. They need to be answering the phone, coordinating the contractors, If you want to get to $10,000 a month, $120,000 a year, capital raise, this is going to take you a few days of time on a deal that you've packaged. The capital raise, total time commitment, low, and it doesn't come up all the time. Management, you can make the option at the 10K level, whether you want to self-manage, which I recommend if it's your first few deals and they're in your market. If it's out of state, immediately add someone to your team who can get boots on ground at your property. I don't like the idea of managing out of state. Without a manager, but you have a decision to make on who you slot here. What you have to do, this is just called creating your org chart for every business. You need to know, okay, to get to $10K a month, I need to buy a few properties, probably 2, 3, 4 a year at most. If I want to do this in the next 2 to 3 years, this is a pretty easy math. So you've mapped out what you want to do. You understand what a deal looks like, which is what Cody just showed us. This is the engine I'm going to chuck into this machine. Where I see people go wrong is they try to go like, okay, well, I'm going to need to get an acquisitions manager. I'm going to go— I've seen this happen. They go, they lease an expensive office, they get 5 staff members in there, they get dialers on the phone. The first mentor Cody and I had, who was the perfect mentor on how not to buy real estate, worst, worst investor I've ever met. He had this vision and he matched his vision just completely imaginary. He had no number up here. He just went, We need dialers. We need 10 dialers just calling for deals. I'm gonna hire a bunch of random brokers with limited experience, all train them myself. They're gonna handle all of these deals. And guess what happened? His business didn't work at all. He wanted to put a, I don't know cars unfortunately, a big engine. He wanted to put whatever engine you put in a Bugatti in a Camry-sized business and it blew his car apart, which I imagine would happen if you did that. I don't know. I don't know mechanics. But I, I just imagine you can't do that. Uh, there's probably a reason that they build 'em the way that they do. You want to make sure that you build a business that makes sense for you. This will not cost you a lot of time to do yourself. For $10,000, that's a few 12-plexes that have gone well, maybe a 25-unit building. You can do this in less than 100 units. You're not handling too much. Management is up to you. This will lower your margin if you offload it, you'll get a little less experience, but you can absolutely, you have to buy 1 or 2 more deals to offset your cost of management. This is the engine that you put in your machine for $10K a month. We're doing 2 calls. That's a 2. I promise that's a 2. Capital's going to take you per transaction. This is going to take you like a week or so out of a year to do 3 or 4 deals. Like you're talking, low, low, low time commitment. Capital, you're putting together a presentation, you're raising capital. Management for a mid-sized portfolio, very part-time job. You're doing a little bit of work every week. You're going to get, if you're self-managing, you're going to get some calls, you're going to get some obligations. Once you pass 30 units, you're going to put it in professional management either way. This is the entire engine that you need to put in this little system. It's not actually that hard to build. The most important thing though, and this is, when you scale, why this is so important to understand. Caleb just grasped this in his business and was like, it all took off. You have to assign someone to each of these roles. And what gets time-consuming and gets impossible is you scale to a bigger number than this. And here's every role needs to have someone assigned to it. So if your assignment is you, I'm just gonna abbreviate it. You, you, you, you, you, you, you, You can't build a huge business. If you're trying to get to $10K a month, awesome. Do it. If you want to get to $15K a month, you can do this. Matt Hawkins, he's probably at $25K, $30K a month. He's busy and he's hired someone underneath him. So he has him, his wife, and a private property manager that just works for their family. His org chart has started to expand. He also has a boatload of cash flow. If you want to build a little bigger business, you have to start filling these out. So here's what a little example of what my engine starting to look like as we have individual properties that need their own staff. Up top, I have me, who I'll call you. And this management, 1 for 70 smaller properties. This is just for Stephenville, Texas. I have 186 units there. I have a few smaller properties. I have a 76-unit, I have 144. This requires 1 on-site. This will require 2 on-sites for this much real estate. We need some maintenance to keep expanding in the market. I still need acquisition capital. These are the basic— I need to have deal flow. I need to have money to keep acquiring deals and expanding. I need to figure out maintenance. I need to have on-site leasing for each property because I now have so many tenants calling in with so many projects. As this starts to scale, I cannot possibly pick up the phone for this all day. We did in this building, we did 6 evictions right off the bat. So we're processing evictions. All of those need unit turns. To do the scale of that, we need to have a maintenance crew and they need to have, I believe we have 3 individuals there who all have different roles at our main company. And then on top of that, you need your networks of plumbers, electricians. And so you have a business like this. This is for one town. This is for Stephenville. In the next, Next week, I close on 144 units in Abilene, Texas. In February, we close on the 81 next door to that, bringing us to 225 units in Abilene, Texas, which means we had to build the same engine all over again, but even bigger because it looks like we're doing another 80 unit after that. Be a 300 unit market. I cannot do this and then have Abilene and then have Waco and then have Washington and then have the Robin Hood and have everything be you, you, you, you, you, you, you, you, you, you, you. I have seen a ton of people try to do that model. That's where some of my friends have gotten stuck and their goal is something crazy. Now, as we mentioned at the very beginning of this, I had some partners to buy out on the Robinhood. And so because we structured the first deal wrong, my goal went from, hey, I want to get to $10,000, $15,000 a month to, okay, how would I scale my business in a way where I don't have to sell off any of my properties or lose ground and still survive and correctly manage the Robinhood with the capital that it needs. And to buy out my partners, I need to figure out $1 million in 2 years, which is why this $42,000, it's rounded slightly up, but that is essentially what you need to do to hit $1 million a year, or not a year, $1 million in 2 years. So that being my goal, I've set aside a few different engines and then we just allocate. Now here's the rules of the game. When you have all these roles, you are trying to get the right people on the bus and then you're trying to get the right people in the right seats. Sometimes you hire the right people, but they're failing in a role. You try moving them somewhere else and they thrive. Sometimes you keep moving around. They're just not a fit. You kindly excuse them from the bus. Cody and I had a partner in Moses Lake. We drove in and we were going to visit a broker, and he's not a very talented broker, unfortunately. And when we introduced them or we were about to introduce them, like, hey, just so you know, this guy's kind of our, like, he's kind of the C team. And he immediately just went, oh, I don't know if we need to do this meeting then. I played select soccer. I only play A. And I was like, while that seems a little bit mean sometimes, it's true. You can't have an A team with a bunch of C players. It's impossible. You're trying to figure out with the salary cap that I have, how do I recruit the best possible team? And so we'll go through and we'll do the math. How much payroll does this all cost? And I'll actually put my payroll over here. And I'll map out, okay, to build this team, what do I have in expendable income from the profit of this engine? From the 186 units that I have here, I have $150,000, I think it was $145,000. I have $145,000 in salary cap to spend to fill these roles. This is your entire map. That is my goal per month, but I'm not there yet. Well, I wasn't. Here's my individual market. I have a business that has this much to spend on the best players that can possibly recruit. You can also give equity in the deals if you run out of salary caps. So you can give up some to get some. Since I can't have me, me, me, me, me, me, me, me, me, me, me, me, me. Led by Corey. She takes up $50,000 of salary cap and has a small equity stake in my PM company. So she has. She's underpaid, but she's given a portion of the company that's rapidly growing. Good deal for her. Here, the on-site here. I also have a 44-unit that needs a little bit of attention here, here and there. But for this engine that we're building here, this is the Abilene deal. I realize Stephenville, we'll do this here. We'll just call this the 44-unit and the smaller. Now we're perfectly mapped for what Stephenville is. On-site Hannah was a property manager who has a company in Stephenville that does fantastic in single family. She's lived in Stephenville her whole life. She's connected with every nonprofit. And we always have problems with the stupid fire marshal who I don't like and don't agree with. He only likes working with people from Stephenville. It's a small town and he wants to work with all of his buddies. However, the assistant fire marshal is married to Hannah. Putting Hannah on her team makes a lot of sense. Hannah does part-time at our 44-unit. And part-time at our 76-unit. So the rules of the game here are you need to slot names on everything. Every position needs a name. No positions can have two names. So every position in your company needs to flow in the right direction. Any person can be slotted in as many roles as you can handle. Can't put two per— people on the same role. That's the only rule for filling out an org chart. Smaller properties, this is handled. This is done zone. This is done. Hannah will do this, but reports to Corey and Corey assists. This is a good model for the management side. Acquisition. We have a lot of deal flow in this market. I am currently sitting at the head position of Robinhood Property Management, the acquisition company, multifamily strategy. I'm working as many hours as one can humanly work and still kind of sleep occasionally. So for Christian, I love negotiating deals. However, we have someone on the team who's even better at doing this. The guy who only wants to do networking, Caleb Hommel, one of my first mentees. He has a little over 200 rentals today. Our flow here, Caleb owns the broker relationships that we mentioned. He owns the owner relationships. We tag team. He actually introduces me to a lot of people whenever he has a meeting. He's like, hey, We're meeting someone, this guy's worth meeting. I drive out and meet. I do the same thing. I network. I bring Caleb along. We operate as one unit. But overall, the beginning of acquisition, Caleb. Within there, close, negotiate, all of the sales that go in here, Caleb will present 5 or 6 deals to me that he has underwritten saying, hey, we have relationships here, here, here, and here. We have opportunities here, here, and here and here. I want to pursue one of these two. Now I will come in, choose one, and we'll start the capital raising process. We'll go under contract. This saved me a ton of time in the beginning. Our 10K goal, Cody and I both were doing the job. We were calling owners, we were negotiating deals, we were getting things under contract. We specialized a bit, but it was just the two of us tag teaming. One of us could do the other's job. The other could do the other's job. We were interchangeable parts. In this, Caleb has defined roles. He's like, I will maintain these broker relationships. I'll go to the broker lunches while coaching multifamily strategy. When Christian's at the property putting out a fire, literally putting out a fire, we had, we had one in the '76, a garage burned down. I drive out and handle the fire. Caleb is back in office making sure that everything is running smoothly and that all the deals are progressing. You add to this legal, legal and lending, all of these pieces of acquisition. Caleb takes the top end of the funnel for, I take the bottom. He talks to our lenders, he negotiates with our lenders, he presents loan packages to me. I then pick up the rest of it, file the paperwork, get us to the finish line. This smooth handoff process is a 2-person process. Compensation for Caleb, he gets a whopping $0, but we share every deal that we do together 50/50. Caleb is a straight up partner. He gets equity, which costs me none of my salary cap. So we have Hannah at, right now she's at $45K. We have Corey, we have $95K of our salary cap spent of a budget of $45K. Maintenance. You can bring this in-house. For me, I don't want to do that. I have too many companies. I have great contractors. We work on these relationships. So I can put this in its own little outsourced box. It costs me money that I could have spent on salary to just make sure this is always coordinated. What I did is said, hey, the rest of my salary up here, about $50,000, that's what we're going to basically be tossing to 3 different groups for all the project coordination. Now, of course, your actual renovation budgets are their budgets, but I took the rest of my salary cap and said, hey, this works. We're way within budget for maintenance. We have a group called N2 in Stephenville. We have a couple of other fantastic contractors. We have a solo guy named Daniel Seals who's our handyman. We chose to do maintenance where they play zone instead of man-to-man, instead of having onsite maintenance for every property. I have multiple teams that all know my properties, that all rove between properties. We need something quick. Daniel Seals drives out. We need something big. N2 drives out. There's always someone working on the portfolio at all times, but they're manning Stephenville as opposed to my property to property org. Who oversees the maintenance people though? I wish I had the time. Danny, my lovely wife, who I retired from teaching, I got stuck with that job. We're going to work on retiring her from her new job very soon. So our goal, personal goal for me is we want to— we have kid number 1. My little kid Xandri just turned 1. Would like to continue to grow the family. So her new goal, because she actually loves this job, she's amazing at renovation design and coordinating the contractors and she's meaner than I am, which means the contractors actually get stuff done on time. Danny's goal is to retire from this. So we know that we need to open up salary cap for someone to oversee this. Danny comes in as an equity holder in the entire portfolio and the company alongside me. What I want to show here though, is the difference between $42,000 a month and $10,000 a month is wildly different. You can solo the $10,000 a month. You have to figure out Corey, Hannah, Caleb, Danny, and all the associated contractors, and you have to have the software to track it. Then you have investor relations, which is just me. So I guess we'll add that as one more piece to our org, IR. We know with Caleb from working with him for a while, Caleb is the best worker of all time and he is the one of the most effective people as long as you give him one primary task. If you give him two tasks, he tries to do both at 100%. If you've ever tried to split yourself at 200%, it does not work well. Caleb needs to charge at one thing. So we keep Caleb on the lending, the brokerage, the legal, but the, it's all front end. It's all relations. So Caleb's job, outreach connections. He has the sweetest job. His job is basically take people out to lunch all the time, all day long. However, I don't have time to do that. That is the most costly thing to me time-wise. Caleb runs the fun part, spends all of his hours on the fun part, and allows everyone else to do everything that they do. When we get to the investor relations, I'm typically the one who's maintaining everything with all of my investors, making sure we have communication flow so that people aren't just sitting there left in the dark. Which is the worst thing you can do, period, in your portfolio is make everyone a bunch of money and don't let them know that you're making money along the way. Because if you hit any snag in this process, who here has had a real estate transaction not go exactly as planned? You guys are standing in my one that went least to plan. And by standing, I mean sitting. This was so stressful. If we had not communicated with the partners how things were going, can you imagine how the call would go near the end? Hey guys, so surprise, it's been a couple years. Yeah, we didn't make as much money as we thought. Like, that's how you get yourself sued. People get mad, people get upset. If you have a problem in here and you're doing good at investor relations, so this is my main role or can be yours. For investor relations, this is the part where I'm like, hey, does everyone know what's happening? When there's a problem, am I allowing my partners to weigh in? Example, Matt and I have a project in Afrada. It's actually— the reno is going fantastic. The building is beautiful. Leasing is going okay, but we have a little bit of a dispute with how our PM's managing it and the timelines on the project. It's not going poorly at all. It's leasing up, it's making money, but it is a little bit behind schedule. If I just announced to Matt in front of everyone right now, hey, surprise, Matt, We're making money, but not yet. That could be a little bit shocking. But what we do is him and our other partner, we get together and we actually talk about the deal. We talk about ideas on how to fix it and we can build our own org chart for the problems. So we have another investor on it. We'll call him Steven because I don't know if he wants to be named. His name's not Steven, but he'll go through, we're leasing our retail spaces. He's like, I'll reach out to the Chamber of Commerce. Let me own the retail space. Now they're part of the solution. I have yet to see almost anyone get sued on a deal where you brought in everyone as part of the solution and everyone's aware of the problems and everyone's working on it. It's when you try to fix it all yourself that you have the problems. Caleb's first ever deal, he did what Cody and I did. Amazing. Your first mentee does exactly the same mistake as you. Caleb came in and he found Okay, so if I raise exactly enough to close the deal, but I have a reno project, if someone moves out, I now lack the cash flow to continue my reno project. He had an awesome deal, fantastic debt structure, like 9 out of 10 for, if I was just ranking that deal, near perfect deal because he didn't raise enough and he didn't have the right investors. What he did instead of calling everyone is he just kept writing checks and just funding all the reno. He owned 20% of the deal. He was footing 100% of the bills. When it came time to refinance, he then let his investors know, hey guys, by the way, I have a ton more money in this deal than you guys. How do I get refunded? And everyone was like, I thought the deal was going amazing. I always got my distribution. It was the most awkward conversation. What he ended up having to do, which wasn't too bad, he found other investors who had a whole bunch more money. To buy them out, fund the rest of his project. Everyone got a return and Caleb used that to balance the capital account. So he got his money out, their money out. They actually all posted a profit and he brought in other people to finish his epic deal who had the liquidity. You can fix anything that you do in writing as long as everyone agrees to it. It's the beautiful thing about contracts. Cody and I learned that a few years in is everything in writing can be changed in writing. There's a lot of flexibility. But that was one of the most stressful things that ever happened to him. I remember he would call me just in an absolute panic. He's like, we didn't talk. I want to own this piece of my business. You might find you have an engineering background. You might actually be amazing at maintenance. You might even start a maintenance business that plugs into your company where you make a lot of money on this side while getting to this goal. This could be you. This could be someone else. You're not a social person. You're, or you're just an analytical person. Sometimes those people can't present to investors at all. It's just not your strength. Fill in your strengths. Make sure you have the best people on your team for this. You can plug this engine into a 200-unit market or a 300-unit market. It's a simple engine, and I know it looks like it's really complicated because I ran out of pages, so we had to keep this condensed. You can plug this engine. I have my salary cap. I look at it like a baseball team. You have a salary cap. And if you have someone who's like really good, you can pay the luxury tax. You can give them a little extra equity or you can maybe reduce your profitability a little bit to bring on the A-plus. I don't know baseball, but there's the— whoever the guy is on the Dodgers is like the best of all time. Someone— what's his name? Ohtani. Thank you. Thank you. You can pay a little extra if you find an Ohtani, if you have like a greatest of all time. I'm probably going to give Hannah a pretty substantial raise at some point. She's pretty much an invaluable player for Stephenville. I'll sacrifice some profitability to keep an A-team. But this is all you're doing. You're mapping out your baseball team. How do I get the right players in the right position within salary cap to win my World Series, which is right here? I've expended my baseball knowledge. There's 4 bases. Okay, now we've done all the baseball knowledge I have. What do you use for your salary cap? Salary cap. So I have found in PM, so this is what I use. It may or may not be applicable to you. But when I do my deals, I negotiate the management contract because I have property management into the investment opportunity. So I'll say, hey, I'm going to manage, for example, the 144 I'm doing. It is 3% plus salaries. My salaries for the 144 is $120,000 a year for up to 3 employees. When we acquire the 81-unit, that is going to add $50,000 to the salary cap for my onsite person and is built into the actual investment. So my profit in that is nominal because we have fixed cost overhead software, the 3% less all of my variable cost for running the PM in that market is my profit. So I'm making like a point on management on a lot of my deals, but The onsite employees are direct pass-through from the LLC. So in this, I have the 76-unit has enough of a salary cap built into the deal to support this individual. The 45 really goes to Corey, who oversees multiple regions. So you would take this and zoom it out one more where you have Abilene, you have Stephenville, you have Waco, you have Washington. Corey would sit right above all those, and her salary is dictated by portion of all of those that comes out of that nominal 3%, she's absorbed through all of that. Yes, yes, yes. 3% goes into overhead. And again, that, that pays for the management and the software. And again, I have run at about a 1% margin on what we bring in. It's not a lot of money. 1% of the gross rents of everything we manage is about what we profit. But because I run a little skinnier, I'm able to provide all the services of like, we can provide direct onsite and as a bonus, if you are going to run your building with onsite management, you don't have to worry about payroll. You don't have to worry about taxes, filing W-2s. You just pass straight through to us. So when you look at the full property management package, I'm like, we're going to do your staffing, we're going to do your rent collections. We get— my company does asset management as well, so we can do your distributions to owners, your accounting, your bookkeeping. All of that rolls into 3% plus whatever the onsite salary is. And if you're a smaller building, like a 25-plex, will probably be about, depending on the market, like a 6% management fee. That's just a flat, easy way to run it that we've been able to do for an extended period of time. So if it needs an onsite, salary cap exists, which is why for me to open a new market, I need to have at least one building that is large enough to have onsite managers because that's how I personally open up my salary cap. Otherwise I have to get a network of people all paying 6 to 8% to be able to fund all the overhead. This model has been a lot easier for me to manage where I can put key personnel that are paid for by the buildings, but they specifically serve that building and have the advantage of your tenants can walk into the office and sign a lease. It's a beautiful thing, but this is how I built this to scale. Yeah. So really that goes under our capital stack. Wow. It's like we planned this. Look at the one that doesn't have anything underneath it. Okay. Capital stack. So we need to make sure that our deals are fully funded for 3 pieces: closing, reserve, reno. Thank you. That's the one that you just asked about. So when I'm doing my due diligence, we walk with the entire team. So I use a group that's based out of Dallas that does all of my inspections and lease audits. They'll roll in with the contractors same time. I'll get all of my quotes for all of the reno that I want to do. So we have an estimate when we start and we confirm this during our due diligence. So Reno's going to have dollars, closing is going to have the cost, it's going to have reserve. I like to have it at a bigger building. There's a certain point where just you have enough money in the account, but I usually like to do a few months full operating expenses, mortgage, including all expenses. We can survive for 60 days if everyone moved out. So in the 144 I'm buying, we're buying at 98% occupied. Our math is, hey, if every— if all 144 people moved out, which would statistically almost impossible if they all left, we still have enough money in the account to survive for 2, 3 months. That's our reserve. Rental budget is fixed on that one, which we did at that particular one because they're all in good condition. $5,000 per unit every 3 years. The only reason I do that is because if you do a LIHTC property or affordable in Texas, that happens to be where you get 50% off property taxes if you do that. So I was I started doing that because we have to, and then I realized that's actually a great number for a stabilized property. $5,000 per unit renovation every 3 years. That keeps your properties pretty nice, covers any ACs that goes out, does some unit turns. That's been a really healthy base renovation budget. And then we add in whatever we have for large CapEx projects. Yeah, these are Texas prices. And while, yeah, in Washington prices, then yeah, just, just add A couple million for every 3 years. I do about $5,000 per door. It has been a really reasonable full remodel budget for me. So, so if I'm coming in taking over a building for the first time, that covers a lot of failed ACs, that covers a lot of unit turns. A lot of our unit turns in Washington State, they're $3,000 to $5,000. A heavy one can obviously cost tens of thousands of dollars, but on a decent building, you're usually not turning every unit every year, but you will have stuff that fail. You have dishwashers that go out, you have roofs that spring a leak. There's enough that comes up in 3 years on a good condition, just base scenario that works really well for us. And then I add any major projects such as I'm opening on the 144, we're opening a 4,200 square foot commercial space that had flooded years ago and they just kind of left They took out the drywall, but they just kind of left it. We're going to restore that space that obviously has its own allocation, but that all goes into your capital raise. Do not close the deal without all of these. And this one managed by Big C, Caleb's little C. I'm kidding. Yeah. If you're— if your name does not start with a C, probably can't partner. I apologize. I'm kidding. No, I do. I do a lot of the capital allocations. Caleb will actually run these numbers with me. We both run all of our numbers, but when we go through, I'm making sure when we raise, we are very, very, very confident confident we can close with enough money to get through the project. Again, my base thesis, if you buy income and you don't lose that income, so you hold the building indefinitely, you've given yourself a raise for life. I do not want to jeopardize that. It is hard enough to do this. It's not that hard. Like once you get down to it, it's sticks, bricks, and money. Like that's, it's just real estate that makes money. You're buying a small business. When you're running through this, if you run out of money, you kill the cash flow. All the cash flow goes back in the building. You're stuck in this death cycle of I get money in, I spend it on the building. Now the money's gone. Next month something else fails and you just get stuck in never cash flow land, which you may or may not survive. Just buy deals that have enough income, have these reserves, and if you don't have this, you don't have a deal yet. And you just go back to the drawing board and you go, okay, well what do we have to do for this? We need to borrow less money, cheaper money, Lower the price, change the interest rate. There's lots of different ways to manage this, but we're just making sure we have all these in check. And you may have to make sure that you have someone who's on top of making sure the darn money comes in. That's pretty much your business model. Talk words. Wow. Long day at the Robinhood. If you take this and insert this directly into the business, it matches this. It falls within this, you know, your pieces. Sitting down and drawing the darn org chart. While it's not the most interesting thing you can do in the world. This takes you maybe 3 hours. Imagine it took you a full day. You have 365 of these. So we're saying, uh, 1/3 of 1% of your year was spent on actually deciding what engine you want to power your goal. This is one of the most basic things you can do. Every time we found a problem in our business, Caleb and I ran a sales and marketing company for a while and I helped him start it. So it's Caleb's company and I had a little bit of like tiny sliver of equity to help consult and help him get started. Here's the problem with his business model. Caleb had setters. It's for online offers. He had a bunch of really cool— has a bunch of really cool clients, including Christian Osgood. Setters, closers. He has hiring, so he has an HR. He has payroll, which I guess kind of goes under HR, but the way he ran it, it felt like two different departments. Setters, closers, payroll, and you have tech, very tech-heavy. Company. So he needed a lot of automations, a lot of software, always integrating everything. Probably could have used any of you programmers in here, because I know we have a whole bunch of them. This is Caleb's business. Now there's multiple setters. There's multiple closers. There's one HR person, one main tech person with a support person, and then payroll is someone else. When Caleb was like, dude, every time I pay attention to one thing, it goes off. He has one client that he focuses on.. They made an incredible amount of money. It was really cool to watch the stats, but then all of the other clients would do less. And Caleb's like, okay, well, I have all these people working for me. Why is the system not working? If you look to who they report to, HR managed by Caleb, setters managed by Caleb, closers managed by Caleb, payroll managed by Caleb, tech managed by Caleb. The whole building was, the whole business, even though it had employees, every single role was owned by Caleb. It took about company. So he needed a lot of automations, a lot of software, always integrating everything. Probably could have used any of you programmers in here because I know we have a whole bunch of them. This is Caleb's business now. There's multiple setters, there's multiple closers, there's one HR person, one main tech person with a support person. And then payroll is someone else. When Caleb was like, dude, every time I pay attention to one thing, it goes off. He has one client that he focuses on. Someone needs to own the hiring for me so that I can focus my attention on the things that I do best. Caleb's best thing in the world, client acquisition, and he's really good at the software. In Caleb's business, if he goes, okay, I'm going to go onboard clients. So we'll call that another one, expansion. If the business is now Caleb's on expansion and Caleb's really good with the tech. So Caleb owns the tech team. Now he can put person 1 here, person 2 here, person 3 here, and this can end up being person 1 as well. Now you have a 3-person team. You followed the rules. Not everything flows to Caleb, but the information flows to him on a simple spreadsheet. Now he knows where people are in his business, what the— and that's what you want in this. And here's what I want to know at the top of, at the top of this. This is what I want to know. I want one spreadsheet that says this is your delinquency, this is your occupancy, this is how much money you made this month. Here are our turns and make readies and here's what we expect to have to spend this month. I can look at that every single week, which I do on Monday at 9 a.m. Central Time with my wife and my entire team. And we can look through and go, awesome, awesome, awesome, awesome. Why are there 20 people delinquent? This makes no sense. And guess what? We research the rest of the day what's off in that one part of the business. And then we find— turns out our last one was the government shutdown. Turns out a ton of our tenants in that particular part of our portfolio were 55+ on a fixed income, and a lot of them were retired vets. Their money wasn't being set. Well, okay, now we've identified a problem instantly in our business. You're not going to evict all your vets because the government shut down. We just came in and said, hey, you are actually responsible to have money to pay your rent. Like the fact that you're on fixed income, you should still have money set aside. Late fees are still in place, but we're not doing any evictions on any of you. You have as much time as you need or payment plans to figure this out. I'm just There should be a little late fee tacked on. Solutions like that. I've seen people maintain delinquencies and they don't even know. 20, 30% delinquent tenants and all come in as a property management. I audit their business and I'm like, they're like, oh yeah, we're 95% occupied. I'm like, do you want to know your effective occupancy is 60%? You're not making any money. Oh, I wondered why the accounts are always so low. It's like, If you suck at accounting, you add accounting to your team. I have found what this has allowed me to do, and this is why I'm sharing this, this problem. Caleb's company is really good. Caleb actually makes a lot of money now, and he makes a lot of money in real estate. Caleb lives in this really cool tower in downtown Dallas, and he's never had a job in his life. Didn't go to college. He got to do that because he figured out the fricking org chart. He finally figured out the piece where like, oh wait, You put the people on the bus, you get the people in the right seats. This is the only way that I have seen, and I know it's messy, but building, how much do I have to spend? How much am I trying to profit? What do I need to do to get there? If you build this team and you spend a day on just kind of noodling through what are all the pieces and who does it, you can start building this team. It's the only way I know to get from $10,000 to $20,000, $20,000 to $30,000, $30,000 to $50,000 a month. This saved the Robinhood. It also allows me some amount of time freedom to run the companies that I run and you get to scale. So the big choice for everyone here, the decision everyone has to make, and this is really the end takeaway here. What do you want that top number to be? What are you actually trying to build? And then you get there and then once you hit it, you get to set a new goal and it can be more money. It could be more time. It could be another vacation with your family. My personal goal, Dan and I want to expand our family. I haven't had time freedom because I chose The Robinhood project. We chose the adventure and we're paying for the adventure. Now that I've bought the partners out, I get to structure a lot of my business around how do I get a little bit of time back and where do I want to invest that time? I get to pour back into multifamily strategy, which is my number one passion project, and we get to make this place absolutely awesome. Outside of that, more kiddos are awesome. That's, that's what Christian wants to do. Less debt, more kids. That is how you build this. You put an engine in it. You know where you're headed, and then you do what Cody did. And I know he's— oh, there he goes right over there. I thought he was helping us cook. Even better, Cody. The thing that Cody's doing, which I think is the responsible thing, you hit your goal and when enough stuff is enough, you start paying down the debt like crazy. And now you have less obligations, more stability. The best investors that Cody and I ever interviewed, and I interview people on my channel every single week on the Owner Meeting Podcast, the best, most stable people built their business, they hit their goals, and then they paid off their One of our first mentors ever, Gary Mann in Moses Lake. This guy has like $100,000 a month cash flow. He has all of these rentals. I'm like, how did you get there? He's like, well, I put 'em all on 30-year fixed rate debt. I never got around to refinancing. So then they were all paid off. What a great— don't rip all the money out of your business. You don't have to scale to infinity. Know where you're going. For me, I wanted to get to 15. I then had to get to 42. So we built an engine to get to 42. Now that we're sitting there, I want to focus on stabilizing the business, paying down debt. I want to go full Gary Mann. I don't need to have a whole bunch of debt in real estate. We'll take on debt to do new acquisitions. We won't relever other than refinancing to buy out partners or to end a partnership. That's the whole model. Then get everything on long-term fixed rate debt and run it down.